The Finance Blogger

What is it about Debt and Consolidation that consumers do not understand? Every day, I almost read something about this subject online and talk with people who do not seem to understand that if you consolidate your debt, you will make your life easier by only having to make one payment. It will be lower than the total of all other payments due to the lower cost if interest as well. The reason is simply that your interest rate will be lower with a debt consolidation loan, especially if you are consolidating credit card debt.

Why is Credit Card Debt So Expensive

Credit card debt is usually charged at approximately 18% for cards such as Visa and Mastercard and as much as 27 or 28% for cards from department stores like Sears and others who have their own credit cards. With these rates, if you carry a balance over each month, you will pay more interest than the principal. This means that you will take a very long time to pay off the debt if you only pay the minimum payment each month. Most people do not get this point and keep paying and wondering why they have no money left to do other things.

One reason for this website is that we hope to provide readers with information to help them manage their expenses better when dealing with credit card debt and other types of debt. The best way to illustrate and help people is to show an example.

Credit Card Debt and Consolidation

Let’s assume that a consumer has a credit card with a $5000 limit and has run his card up to the limit so that now he owes $5000. He cannot repay the credit card and has decided to pay it off over five years with monthly payments. The interest rate is 18%, and he plans to not charge anything more to the card, which may be unrealistic since most people will charge more to their card once they have a bit more room on it.

He also has another card, Mastercard, that has $2000 on it with the same terms and interest rate. The payments for these two cards are:

Visa – $5000 at 18% = monthly payment=$119.79, and total interest payments = $2,287.07

Mastercard- $3000 at 18% = monthly payment=$71.87, and total interest payments = $1,372.24

Total Monthly Payments = $191.66 and total interest payments = $3659.31

Personal Loan for Debt and Consolidation

Personal loan rates vary greatly. They depend on whether the loan is secured and the level of your credit rating. You can plug in whatever rate you would like. However, we will use 9% and assume the same five-year term for the personal loan. The results are quite interesting and demonstrate why consumers should always consolidate credit card debt. If they are unable to pay this debt otherwise, they should use a personal loan to pay it off in full.

At 9%, the monthly payment declines to $161.58, a $30 savings per month. The total interest paid is $1,829.66, which is almost half the interest payment. Now, if you consolidate the loan and put the $30 savings into the personal loan, this loan will be discharged even faster than the five years, and the amount of interest paid would also be lower.

If this does not convince you to consolidate your debt, we are unsure what will happen.

Avoid Running Up Your Credit Cards in the First Place.

This is the issue that we all face as consumers. We want to have everything now and buy things when we cannot afford it. Most consumers run into this problem of having too much debt and then have to dig themselves out of it. We try to follow the following motto, which we learned after many years of paying too much interest on too many things. Only purchase what you can afford to repay at the end of the month! It seems to work for us, and now we have to do it without a lot of things, but that is okay with us. Good luck with your debt and consolidation objectives.

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